Labour MPs must not force us into a damaging customs union with the EU

John Mills is chairman of JML and Chair of Labour Leave; Professor David Paton holds the Chair of Industrial Economics at Nottingham University Business School, is a member of Economists for Free Trade and a long-standing Labour Party member.

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Labour MPs face some agonising decisions on Brexit votes right now. Notwithstanding the manifesto pledge to implement the outcome of the EU referendum, many MPs are keen to exploit the Tories’ manifest weakness and divisions by inflicting parliamentary defeats on the Government. Understandable as this may be, that the chosen ground for this battle appears to be committing the UK to stay in a customs union with the EU is deeply regrettable.

A customs union would indeed mean tariff-free trade continuing between the EU and the UK. But this outcome is already available from a trade agreement such as that between Canada and the EU, something the EU has already put on the table.

It is the other key feature of a customs union where the problems begin: all countries have to charge a common external tariff external on goods coming in from other countries.

As a result, the UK would be unable to negotiate independent trade deals with fast-growing economies around the world such as the US, Australia and China. But it’s not just about formal trade deals: we would also have no ability to decide what tariffs we charge on imports from non-EU countries. At the moment we are forced to charge high tariffs on food, clothing and footwear imports from non-EU countries, mainly to protect industries in continental Europe.

EU tariffs on imported goods hit the poorest families the hardest by increasing prices of essential goods. They make it harder for poorer countries to export their goods. They do, however, protect the profits of big corporations (no wonder big multinationals like the protectionist customs union so much). This protectionism also reduces incentive to invest contributing to low productivity and long-run wage stagnation.

There are sometimes good reasons to erect tariffs on imports, for example to protect against ‘dumping’ of goods at below cost price or as a temporary measure to protect fragile industries or regions. But staying out of a customs union does not mean we have to reduce tariffs on imports, only that we can decide what is in the best interest of our industries, workers and consumers. Why, for example, would we want to continue to charge 17% tariffs on imported trainers once we leave the EU when all it does is to push up prices for hard-pressed UK consumers?

The customs union proposals are sometimes defended on the grounds that they will somehow help with the Irish border, but this is just a myth. Just look at Turkey, which is in a customs union with the EU. As it is outside the single market, the EU still requires border checks on goods coming in from Turkey to ensure they comply with broader EU rules. In any case, technological solutions for the Irish border already exist and are achievable given goodwill on both sides.

Frictionless border trade is an important objective. Indeed, the costs of cross-border trading have plummeted in recent years, helped in part by electronic declarations and other improved systems. Rather than looking to maintain trade frictions with non-EU countries, MPs should be helping to continue this process of reducing border costs for trade with all countries, most especially those poorer than the UK.

There is at least one more problem with the Labour front bench’s stance of being outside the EU but inside a customs union. If the EU strikes a trade deal to reduce tariffs between itself and a third country such as China, we would be forced to accept the lower tariffs on imports from China but without any guarantee that our exports would get the same treatment.

Jeremy Corbyn suggests that we could negotiate a special deal with the EU on this point but sadly this is beyond the realms of fancy. If MPs vote to force the UK into ‘the’ or even ‘a’ customs union, the inevitable outcome will be the UK being a rule-taker having little or no say in trade policy and almost certainly having to make large payments to the EU for the privilege. No-one can blame the EU for being keen on such a situation. For Labour MPs to opt for such a ‘worst-of-all-worlds’ deal voluntarily would be unforgivable.

Sadly there are some MPs on both sides of the house who are actively seeking a poor outcome to negotiations, calculating that, in this way, Brexit can be reversed entirely. Such an approach is not only cynical and unprincipled, but will surely be self-destructive. There is no appetite in the country for a second referendum. Given also that 70% of Labour constituencies voted to Leave, any short term satisfaction from defeating the Government would almost certainly be at the expense of losing marginal Labour seats in the Midlands and North. The highest price though would be paid by those on low incomes throughout the country. Labour MPs beware.